This review of the Department of Labor’s recently-announced Payroll Audit Independent Determination (“PAID”) program comes with side of skepticism. With all new voluntary programs, trust but verify.

PAID was rolled out in March 2018 with much fanfare about its benefits. PAID is a 6-month pilot program sponsored by the DOL’s Wage and Hour Division (WHD) whereby an employer can voluntarily engage in a self-audit of its payroll practices. If that audit reveals suspected or actual violations of overtime or minimum wage provisions of federal law, the employer discloses those to the WHD. Specifically, the employer must identify the violations, the affected employees, the timeframe, and a calculation of back wages owed to each affected employee. The WHD then begins a process with the employer to identify and remedy violations. The process will likely include the WHD asking for information which must then be provided.

The WHD either approves of the employer’s back pay calculations, or adjusts them based upon information received. At the conclusion, the WHD prepares a form, presumably the same form it is currently using (although that is not yet confirmed), titled the Receipt for Payment of Back Wages, Liquidated Damages, etc. This form is addressed to each affected employee and notes the amount of back wages to be paid to the employee under PAID. It also advises the employee that he is waiving his rights to sue under federal law for back wages, liquidated wages, and attorneys’ fees “for the period of time” indicated on the form.

The employee has the option to sign or not to sign. If the employee signs, the employer is to pay the back wages in full by the end of the next full pay period. If the employee does not sign, he retains all legal rights to any claim he may choose to bring.

The WHD is touting this program as a win-win. Employees get paid correctly, faster, and without litigation. Employers are encouraged to proactively get their house in order, while minimizing the risk of what we know to be costly litigation if employees sue.

An employer will need to make an individual decision about whether to participate in the PAID program. Legal counsel would be worthwhile in such a consideration. Here are some things to ponder:

Certain employers simply cannot participate. You cannot participate if you are already being investigated by the WHD or if you are already party to an administrative or legal proceeding regarding minimum wage or overtime claims (including informal overtures from an employee’s representative about settling such claims).

An employee who does not sign the WHD’s form will not waive any legal rights but will have a document which states the employer owes back wages. This employee may go to an attorney and bring a lawsuit for back wages (as well as liquidated damages and attorney’s fees) for the time period in question and perhaps a longer time period. The big risk here, other than the additional damages and fees associated with that single employee, is that the attorney may attempt to parlay that single-employee case into a collective action.

An employee who doessign the WHD’s form does not waive any other rights under federal law. In other words, if there are other violations (e.g., for a different time period, for a different violation), the employee retains the ability to sue. Moreover, the employee may also have state law rights, none of which are released by the WHD’s form. The WHD has no mechanism to provide the employer with a global waiver and release as part of the PAID program.

Undoubtedly, some employers will choose to participate in this program, and it will work like a charm. However, it is possible that an employer will participate, and there will be unintended consequences. Before you participate, consider all possible ramifications. Each employer will determine its risk tolerance.

In roughly six months, the WHD is to evaluate PAID and determine whether it should continue and, if so, whether any changes need to be made. Perhaps we will know more then.

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I write this blog for informational purposes (and sometimes amusement purposes). It is not intended to provide legal or other professional advice nor does the transmission of this information create an attorney-client relationship between any attorney of the Firm and the reader. If you seek legal advice or assistance, please consult with a competent attorney familiar with the applicable laws. If you wish to initiate possible representation by an attorney with our Firm, please call the attorney of your choice. You will be advised of our processes to avoid conflicts of interest and requirements of our letter of engagement prior to the commencement of representation.